One in ten retiring this year ‘plan to withdraw all their pension pot’

One in 10 people retiring this year expect to withdraw their entire pension savings pot as a single lump sum, a survey has found.

This could cause a shock tax bill for some of the 10% planning to take out the whole amount, according to Prudential, which made the findings.

The pension freedoms introduced in 2015 give over-55s with defined contribution (DC) savings pots a wider range of choices over how they use their money, including being able to withdraw all of it, some of it or leave it invested.

Generally, the first 25% of money taken out is tax-free and the remainder is subject to tax.

A fifth (20%) of those retiring this year expect to take out more than the tax-free amount, Prudential found.

Seven in 10 (71%) of those planning to take all their fund in one go plan to invest in other areas such as property, saving accounts or an investment fund.

Holidays, home improvements, gifts to children or grandchildren, buying a new or second-hand car and paying off the mortgage were also popular reasons for people taking lump sums.

Stan Russell, a retirement income expert at Prudential said: “Pensions freedoms allows savers to have the flexibility on how and when to spend their money without being penalised by the tax system, but it is worrying that so many will withdraw more than the tax-free lump sum limit.

“The risk is even greater for those who are taking all their pension fund in cash.

“They not only face paying more in tax than they have to but also put their long-term retirement income security at risk.

“Consulting a professional financial adviser in the run-up to retirement or seeking guidance from the free resources available including the Pensions Advisory Service can help to plan ahead.

“This would ensure people access their pension in a way that benefits their long and short-term aims without giving too much to the taxman.”